Columnist Lavina Moore, Senior Investment Director, Investec
Making Sustainability A Priority A
s investors place increasing importance on economic, social and governance issues, businesses that fail to respond may struggle to see out the next decade. Here, Investec’s Senior Investment Director Lavina Moore shares some learnings from working with entrepreneurs and business leaders. Over the past few years corporate sustainability has attracted much attention and research. However, the concept is not new. While much attention has recently been placed on environmental, social and governance (ESG) issues, sustainable investment has been around for decades. Investec has been on this journey since the company’s inception, and we published our first sustainability report – Our journey to sustainability – in 2002. The publication incorporated the group’s environmental efforts in addition to details of educational and entrepreneurial philanthropy undertaken by the group. At the core of sustainability is an understanding that people cannot exist without a healthy and thriving natural environment. The elements of profit, people and planet are the key building blocks of existence. After the 2008 financial crisis, when attention was given to how to encourage more long-term investment thinking, the concept of sustainability was highlighted on policymakers’ agendas. The Paris Climate Agreement and consumer demand also saw an increased drive to incorporate climate change considerations in business processes. As we enter an era of stakeholder capitalism, CEOs want their companies to be recognised as a force for good.
This means we need to focus on delivering social and environmental value in addition to financial returns for individuals and corporates. Aligning activities with the United Nations Sustainable Development Goals (SDGs) such as clean energy, quality education and gender equality could open up an estimated US$12 trillion in market opportunities, according to the Better Business Better World report by the Business & Sustainable Development Commission. How to finance change Business leaders and entrepreneurs tell us they are concerned about who will finance the changes that are needed to help transition to a sustainable economy. According to the United Nations Secretary-General, António Guterres, they cannot rely on governments alone: “We have to mobilise the private sector, it is 75% of the global GDP,” he said. “Moving forward, collaboration with business is crucial when it comes to fighting climate change; we’re not on track on this.” In particular, the climate finance gap is estimated at between US$2.5 trillion and US$4.8 trillion. The financial sector therefore has a significant contribution to make in accelerating the shift to a low-carbon economy and banks are expected to increase their financing in renewables and clean energy, in particular. The Investec Fund Finance team recently offered the first European mid-market ESG-linked loan to InvestIndustrial, a leading European investment group. The €600 million facility offered reduced interest payments when specific goals – in areas such as environment, gender diversity and governance – were met.
60
Any cost savings were then earmarked by InvestIndustrial for investments in carbon reduction projects. How to invest your money responsibly At Investec, we also assess ESG risks in relation to personal investments. These are fundamental risks that we monitor to understand potential shocks and opportunities. In fact, we recently became a signatory of the UK Stewardship Code to help guide industry best practice in this area. Our team in Belfast continue to increase their understanding of this space. I have recently achieved the Certificate in ESG Investing from the CFA Institute, which is recognised by the UN Principles of Responsible Investing. I strongly feel that continued learning, with increased skills and knowledge in ESG, will be essential when analysing potential investments as sustainable investing continues to rapidly evolve. The inclusion of ESG factors, along with traditional financial factors, is crucial for our investment analysis and decision-making processes. Whilst we utilise bottom-up screening and scoring for quantitative ESG data, we also place significant importance on qualitative data, with the opportunity to be more active and to interact with company management teams to engage on ESG matters. As well as soliciting more information about the significance of and priorities for ESG within a business, we can also communicate our own agenda. Clients want to know the ‘impact’ that their investments are making – both positive and negative. If you’d like to discuss your options, please get in touch. investec.com/ belfast
